RTI: the proposed penalty regime

All employers will be required to operate Real Time Information by October 2013. In the latest piece in our RTI series Steve Wade, international executive services director of tax and pensions at KPMG, looks at the proposed penalty regime

Real Time Information (RTI) is a major change to the reporting requirements for the collection of tax and NIC under PAYE. Under RTI, the employer will be required to submit information including details of earnings, the tax and NIC deducted each time a payment is made to an employee. For further information please refer to our previous articles on how RTI will impact SMEs, larger businesses and tax agents

Background

In June 2012, HMRC published a consultation document entitled Securing Compliance with Real Time Information – Late Filing and Late Payment Penalties. The document set out two alternative penalty models in connection with late filing penalties under RTI and also set out proposed amendments to the existing penalty regime for late payment of taxes. The consultation sought feedback on the proposals and suggestions of additional matters to consider. The closing date for comments on the proposals was 6 September 2012.

RTI penalties will be issued automatically to employers and will be subject to appeal in line with other penalties. In addition to late filing and late payment penalties there will also be penalties for filing an incorrect return under RTI and these will be issued manually.

The stated aim of the proposals was to keep the new regime “as simple as possible” in order to encourage compliance with the new regulations. HMRC states that penalties should:

• Be fair;
• Influence behaviour; and
• Be effective.

Late filing penalties – the proposals

The consultation document proposed both a basic and enhanced model for late filing penalties.

The basic model suggested the following:

• Immediate penalty charged at the time of default with a penalty charged for each default;
• Further penalties for outstanding returns charged at the 6 and 12 month points;
• Additional penalties if no information is received by HMRC at the 6 and 12 month points.

It was suggested that the size of penalty should be based on the size of an employer (ie an employer with 500 employees would pay a higher penalty at each default than one with 50 employees).

The enhanced model based the penalties on size of employer rather than defaults and also included the following adjustments:

• A warning rather than a penalty at first default;
• Penalties to be issued quarterly rather than immediately;
• Employers to be allocated to staggered quarters;
• Penalties levied only when they reach £500.

Again additional penalties at the 6 and 12 month points would apply.

Late payment penalties

HMRC states in the consultation document that they do not intend to change the existing model for late payment penalties. However, they did set out the following amendments which they believe are in keeping with the stated aim of keeping the penalty regime as simple as possible:

• Change in the definition of the trigger date for late payment penalties to the day after the due date;
• Ensure that penalties will be charged for all late payments relating to the tax year and not just payments due during a tax year;
• Fixing the penalty level to the number of defaults during the tax year;
• Amending the regulations so that “excessive” penalties can be reduced;
• Automatic charging of penalties on a monthly or quarterly basis.

Response to the consultation

HMRC has now provided feedback on the results of the consultation on the penalty regime. KPMG has learnt that 40 responses were received to the consultation paper and that these came from a variety of sources ranging from large businesses and accountancy firms to individuals affected by the changes.

There was general agreement that the model for the penalty regime should be as “simple as possible” and that the new regime should be modelled on existing penalty provisions which are already understood by employers.

Other suggestions also include the ability to appeal against a penalty via an online system and advance notification of a reasonable excuse for a delay to prevent penalties being levied.

Next steps

KPMG understands that no decisions have yet been made, either with regard to the overarching penalty regime or regarding the size of the penalties. HMRC, however, has not ruled out any of the suggestions and are considering how these would fit with the wider regulations regarding penalties. They acknowledge that the majority of employers do try to comply with regulations but employers should bear in mind that repeated errors will feed in to HMRC’s risk assessment and that these errors may trigger further investigations and penalties.

The final article in this RTI series will cover RTI anomalies.

Steve Wade is international executive services director of tax and pensions at KPMG

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12:35 on 12 November 2012

Comment by Tim Ryan

RTI is unnecessary where there is no Universal Credit claim and many of the smallest employers pay the same net wages, week in, week out. There's no adjustment for coming in half an hour early or late and even holiday pay doesn't need to be recorded as such in the payroll.
That being so, they do not need to visit the payroll each time a payment is made and for the past ten or twenty years, have been able to prepare the payroll far in advance of the payment date at the press of a button.
To avoid the mighty hand of government falling unfairly heavily on micro-employers, I see only one solution. They must be able to file up to 52 weeks in advance at one fell swoop and leeway given to amend these nearer the time.
Government will then have correct figures (in the event of a tax credit claim) and be freed to police tax collection and other compliance matters without need of a punitive penalty regime. Perhaps I am missing the point.